Following 7 Weeks Of Market Topping Inflows, Retail Once Again Turns Its Back On Dropping Stocks With $3.1 Billion Outflow

It was to be expected: after 7 consecutive weeks of inflows during which the market drifted aimlessly, while seeing insiders dump a few billion to witless retail hot potato chasers, forming what some are calling a quadruple top, not to mention various revolutions and now counter-revolutions in MENA, the retail investor has once again said enough and turned their back on stocks. The beneficiary: taxable bond funds, which saw a whopping $4.8 billion in inflows, despite attempts by everyone in the propaganda machine to dissuade investors (read Baby Boomers) from putting their money into fixed income and reroute capital to stocks. Well, in an age of immediate demanded gratification and POMO-adjusted Newtonian third laws, every future inflow better be met with a greater than expected spike in the market, or the resulting outflow in the next week will be vicious. Also those hoping that the ongoing outflow from munis will finally end, will have to wait at least one more week: the week ending March 3 saw $711 million in muni outflows. Of course, following today's spanking by Jeff Gundlach we wouldn't hold our breath on a massive resurgence in capital allocation to an asset class which one of the greatest fixed income minds is due for a 15-20% correction. Yet what truly boggles the mind, is Legg Mason's response on how the $672 billion asset manager plans to deal with billions in sudden redemption requests: "Those outflows will be largely offset by market appreciation," said Nachtwey, chief financial officer of Legg Mason." In other words, the Ponzi will continue... or else Legg Mason is dunzo.

And some more observations on how not only retail is pulling money, and what this means for mutual funds, now leveraged more than ever in the post-Lehman period:

Two mutual-fund management companies said Wednesday their assets were affected by outflows in February; the companies, Franklin Resources Inc. (BEN) and Legg Mason Inc. (LM), wouldn't say whether they had net outflows overall for the month.

Franklin Resources's assets under management were affected by $4 billion in redemptions by institutional investors in global equities in February, Ken Lewis, the company's finance chief, said at the Citigroup Inc. (C) Financial Services conference.

Shares of Franklin Resources closed down 2.5% at $123.98.

Still, "the quality of the flows in January and February has been improving," said Lewis.

The San Mateo, Calif., money manager reported Tuesday that assets under management totaled $693.7 billion last month, up from $681 billion in January and $556.3 billion a year earlier.

Also speaking at the conference was Peter Nachtwey, chief financial officer of Legg Mason. Factors affecting investment flows last month include a fixed-income outflow of $1 billion and another two dispositions of $2 billion each. One of these $2 billion outflows is related to an "Asian equity manager who bought their operation back," said a spokeswoman.

Those outflows will "be largely offset by market appreciation," said Nachtwey. In January, assets under management totaled $671.8 billion, little changed from a month earlier. The Baltimore fund manager will report assets under management, as of February, on Thursday.

as bob blackrock doll mused this morning on Bloomberg, the outflows two years ago(between 666 and 900 were gargantuan and according to him most of that money went into bonds many of which are underwater. He didn't mention Rosie by name.

Ahh, I remember these ICI charts being touted here while the outflows were negative but as soon as they turned into inflows they disappeared immediately. It looks like we're due for another cycle of negative outflows and full coverage of them once again.

For those of you who haven't been around long, this pattern of outflows is unprecedented. By the end of the first year of a bull run money is usually pouring in.

What you should realize is that in normal times the inflows never stop for long because people gainfully employed at jobs with retirement benefits keep adding money every month. In "the old days" that money went mostly to stocks.